I would also like to learn more on return on investment (ROI) and to set up a spreadsheet correctly.
As stated in this
Investopedia definition of ROI, ROI is a popular metric because of its simplicity and flexibility. But in that flexibility lies the ability to fool yourself by using wishful thinking when selecting your inputs.
I can see using ROI if you are comparing two investments like say a bank CD vs. a U.S. Treasury bond. But these are very different than an investment in a truck that you operate and that has a tax depreciation schedule, the cost of labor (the driver) required to make the truck move, the cost of fuel that is also required to make the truck move, the cost of interest paid to finance the truck purchase, the cost of insurance that must be paid even when the truck sits idle, etc.
Notice too that the returns you get from two identical trucks will vary dramatically depending on the driver(s) that occupy them. In one truck that has the exact same value and operating costs as another, an intelligent professional driver will produce much more than a driver in the other tuck who goes home every two weeks and turns down loads because he or she does not want to miss a TV program.
Trucks produce nothing on their own. It is only in the hands of drivers that they make money. That is one of many reasons why ROI is inadequate in and of itself. Evaluating the ROI of a truck without accounting for the driver variables is like evaluating a human body without accounting for the fact that it may be alive or dead.
When you buy a truck you are deploying capital to acquire an income producing asset, an asset that must be operated to provide any kind of a return at all. It is not like an investment in something where you put money into it, put it in a drawer, and wait for the maturity date to collect your gains.
ROI is a ratio; one of dozens and dozens of ratios that financial analysts use to gauge the financial performance of a company. Different ratios measure different company aspects. Some measure profitability, some measure management ability, etc.
No single ratio tells the complete story. See
this list to get a sense of the variety of ratios that exist and what you can learn about them with further study.
Notice that no matter what ratio you are talking about or think is better than others to measure company performance, it is a ratio. A ratio does not come out of thin air. It is a calculated value, the inputs for which, come from your company income statement and statement of net worth (balance sheet).
Before calculating a ratio of any kind, you must have the numbers to plug into the calculation. In that regard, your inquiry about how to correctly set up a spreadsheet is spot on because a spreadsheet is commonly used to produce both an income statement and a statement of net worth.
When you have those two documents in hand and in good order, you can use the numbers to calculate any number of ratios and then decide which ratios best tell you what you want to know about your business and how meaningful any of those rations may or many not be.
Once you have a good income statement and statement of net worth spreadsheets up and running, I think you will find that ratio analysis is more trouble than it is worth.
You are not running a complex corporation. You are running a one-truck expediting business. Your income statements and statements of net worth compared to each other over the months and years will tell you almost at a glance where you are doing well and where you can improve.
If you want to step deeper into it and calculate ratios to then analyze, you certainly can. It is a simple matter of plugging the ratio formulas into your spreadsheet. The question is, do you really want to do that, and if so, why?
Diane and I spent $251,000 to buy our truck in 2006. We could have invested that money in other things like stocks or real estate or part ownership in a business that is operated by others, or anything else.
Sure, an analyst could run our numbers through any number of screens to determine what this ratio or that is to see if this investment was better or worse than others. But doing so would be a meaningless exercise. It would be meaningless because we did not become expediters and buy a truck for the money alone. We did it also for lifestyle considerations, the value of which cannot be quantified or evaluated in financial terms.
In your and Bob's case, Linda, I suggest that ratio analysis would be similarly meaningless. Without even looking a a spreadsheet, you already know that your profitability would be increased if you limited yourself to one truck show every two years. But you don't limit yourself like that because you enjoy truck shows, so you willingly sacrifice the income you could otherwise make and spend the money to go to them.
If you were in the business for the sole purpose of producing good ratios, your behavior would be different. But you have already decided that lifestyle trumps ratios, thereby rendering the ratios meaningless.
It is different in the corporate world where ratios are regularly used by shareholders to evaluate management. Corporations exist to make money for the investors and heads roll when targets are not met.
Expediting is different. You get to keep your head and have fun too.
Regarding learning how to use a spreadsheet, I was a software instructor for a while before getting into expediting. One of the best self-help resources I found was the Microsoft Step-by-Step series. Find the Microsoft Office Excel Step-by-Step book that corresponds to the version of Excel you have and buy that book. If you are an OpenOffice.org Calc user, buy the book anyway. A spreadhseet is a spreadsheet. Much of what is in this excellent Microsoft book will transfer directly to OpenOffice.org.
